At the time of writing, shares of TopBetta Holding Ltd [ASX:TBH] are trading at 13 cents, up by 30%. TopBetta operates a retail and wholesale wagering business, offering consumers wagering, fantasy tournament and content products and services.
Why did TopBetta Holding shares do this?
On 18 April, TopBetta announced it would sell TopBetta and Mad Bookie retail businesses to PlayUp for $6 million. TopBetta will retain 20% of the retail revenue from TopBetta and Mad Bookie as part of the deal. The deal looks good for TopBetta. The company projects an 18% reduction in revenue, offset by a 48% reduction in costs.
What now for TopBetta Holding Ltd?
A cost reduction strategy is necessary for the company. It generated negative operating cash flow of $2.3 million last quarter. TopBetta held roughly $3.3 million in the bank at 31 March. In other words, given the cash burn rate, without the sale of its retail business, the company probably would have raised more capital from shareholders this quarter.
The deal removes significant pressure on shareholders, given the cost reduction and $6 million price-tag. The company should now have enough capital to execute its wholesale business strategy over the next 12 months.
That’s good news.
I believe the market is reacting positively to the change in strategy, with the focus now on the wholesale and the Global Tote business. The Global Tote, which is licensed in the UK, has turned over $100 million over the past 12 months. There’s still a lot of work ahead to demonstrate the new business strategy works.
TopBetta seeks to become the wholesale operator of choice for racing data, platforms and products that save operator’s costs (such as reducing the number of data feeds from currently hundreds per bookmaker to a single integration point established by the company). If the company can expand its business and turn cash flow positive over the next few quarters, which certainly looks possible, the share price could reverse into an uptrend and revisit previous highs.
Analyst, Markets & Money
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